Course Outline. FNCE Derivative Securities (3,0,0)

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1 Course Outline Department of Accounting and Finance School of Business and Economics FNCE Derivative Securities (3,0,0) Calendar Description Students learn to value the main types of derivative securities and how to effectively utilize them in risk management, asset speculation and financial engineering. Topics include an introduction to forward and futures markets and hedging; mechanics of future markets; hedging with future contracts; theoretical and forward prices; introduction to options; calculating option contract profits; put-call parity and arbitrage bounds; option pricing models; exotic options; and swaps. Educational Objectives/Outcomes Upon completion of this course, the students will be able to: 1. Explain the mechanics of the futures and forward contracts. 2. Calculate profits or losses on future and forward contracts for hedgers and speculators. 3. Determine the futures prices for commodities and stock indices and describe how theoretical upward and lower bounds impact possible prices. 4. Discuss the mechanics of options contracts and the markets they trade in. 5. Calculate theoretical option prices using one and two-stage binomial models, as well as under the Black-Scholes model. 6. Demonstrate how put-call parity works in options markets. 7. Show how technical analysis can be used in a trading strategy for futures or options markets. 8. Assess the importance of interest rate and currency swap contracts in hedging. 9. Explain how credit default swaps potentially reduce risk. 10. Describe the characteristics of alternative derivative contracts such as weather derivatives, energy derivatives, swaptions, and exotic options. Prerequisites FNCE 2120 or FNCE 2121 or FNCE 3120 (grade of C+ or better); ECON 2330 or ECON 2331 Co-requisites None Texts/Materials Hull, Options, Futures and Other Derivatives, 8 th Edition, Pearson. Revised Summer 2015 Page 1

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